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5 Areas to Allocate Funds For Farm Bill Safety Net Programs

With several programs offering a counter-cyclical price protection, Congress may ask if there are more cost-effective means
Congress should decide if the commodity support mix should be changed by developing a whole-farm insurance program
Congress believes that subsidies to biofuels should be considered part of any farm program payments
Policy makers want limits tightened to save money for USDA, made more proportional to production, or limited per individual

Source: University of Illinois farmgate | Oct 27, 2010

After the election, the farm bill bus will either being going fast or slow. Observers say Democratic control of the Congress will lead to a quick renewal of the Farm Bill, but GOP control of either or both houses will slow the process. Regardless of the speed, there is not much fuel in the tank, since the 10-year spending plan for agriculture safety net programs is an average of $15 billion/year through 2020. If you had to make the choices, where would you allocate the funding?

The Congressional Research Service (CRS) recently issued a new report to Congress that outlines the financial issues surrounding the next farm bill, and how much money is available for appropriation in the traditional safety net programs. Those include program payments, crop insurance and disaster programs.

The lengthy CRS report addresses many issues, but culminates with a look at policy alternatives. Since 2003, appropriations for those safety net programs have ranged from $12 billion to $21 billion. For 2010, crop insurance and the ACRE and Direct Payment programs will peak at $15 billion with the SURE Program receiving another $2 billion. In 2012, the total is forecast at $14 billion with the balance of the decade at the $15 billion mark/year.

The CRS economists report that supporters of farm programs have continued to call for disaster relief, which indicates the safety net is not working well. Both ACRE and SURE have been characterized as too complex and few farmers would disagree. Other critics have said the marketing loan provides no relief since it is well below current commodity market levels. So how should those issues be repaired and limited funds be allocated?

Farm risk management.That defines the crop insurance program, which has a relatively high participation rate, but may be the only safety net program that exists in years to come. That is because of the high level of subsidization and the opportunity to reduce both yield and revenue risk. There is a limited overlap of covering revenue variability if a producer has both the ACRE program and crop insurance. With several programs offering a counter-cyclical price protection, Congress may ask if there are more cost-effective ways of doing that.

Commodity coverage.Over time, the major commodities have been included within the USDA umbrella and have received farm program benefits. But smaller and less-politically powerful commodities have not had the opportunity to jump to the higher level. CRS says Congress should decide if the commodity support mix should be changed by developing a whole-farm insurance program.

Biofuels subsidies.There are several programs supporting the production and use of biofuels, such as ethanol and biodiesel. Corn consumption has increased 30% in the past decade, driving corn prices higher while receiving nearly $6 billion in subsidies. The increased demand for corn has contributed to an expansion of corn acreage, taking that away from some other crops or creating higher prices for those other commodities. Some in Congress believes that subsidies to biofuels should be considered part of any farm program payments.

Complexity.The ACRE and SURE programs are designed to help farmers manage revenue risk, but in an effort to create a transparent program, the number of calculations needed to determine any payment is so complex it reduced the number of participants.

Program and farm limitations.The current farm bill created a payment limit to restrict money to only farm operators, and eliminate the larger operators from eligibility. Participants had to pass a means test, and coordination occurs annually between USDA and the IRS. Some policy makers want limits tightened to save money for USDA, made more proportional to production, or limited per individual.

Summary

As Congress considers new farm legislation, it will not only have financial limits on how much could be spent but what programs should be funded and at what levels. Current programs could be expanded or reduced and other kept as is. Funding will be limited at $15 billion/year through the end of the decade.